Wednesday May 22, 2024

Closely watched by IMF, Rs14.46tr budget raises pay, pension

Ishaq Dar presents expansionary budget proposal of Rs14.46tr for FY2023-24 amid unrelenting pressure of IMF

By Asim Yasin   & Israr Khan
June 10, 2023
Finance Minister Ishaq Dar presenting the federal budget FY24 on June 9, 2023. PID
Finance Minister Ishaq Dar presenting the federal budget FY24 on June 9, 2023. PID 

ISLAMABAD: Finance Minister Ishaq Dar Friday presented an expansionary budget proposal of Rs14.46 trillion for FY2023-24 amid an unrelenting pressure of the International Monetary Fund. 

In the wake of unprecedented high inflation, the coalition government, led by Prime Minister Shehbaz Sharif, Friday raised salaries and pensions of the federal government employees in its second budget to match the rising prices. The budget document proposed ad hoc raise of 35 per cent in the basic pay scales of federal government employees in BPS 1 to 16, and 30 per cent for those in BPS 17 and above . Pensioners will also get 17.5pc raise. The minimum wage was increased to Rs32,000 from Rs25,000 per month, while the EOBI [Employees Old-Age Benefits Institution] pension was increased to Rs10,000 from Rs8,500. Dar announced the increase in salaries after the cabinet approved it after a hectic debate. He said the mileage allowance for federal government employees had been enhanced by 50pc, while additional charge/ current charge/ deputation allowance was increased from 12,000 to Rs18,000. Orderly allowance was enhanced to Rs25,000 from Rs17,500 and there would be a 100pc increase in special conveyance allowance for the disabled, raising the amount from Rs2,000 to Rs4,000. The finance minister said constant attendant allowance military had been enhanced to Rs14,000 from Rs7000. In the budget for the fiscal year 2023-24, it was also announced that the House Building Finance Corporation scheme was being introduced for the indebted widows. Under the scheme, the government would pay HBFC loans to the widows to the tune of one million rupees. Ishaq Dar announced the deposit limit in the martyrs’ accounts at CDNS was enhanced to Rs7.5mn from Rs5mn, while the deposit limit on Behbood Saving Certificates was also enhanced to Rs7.5mn.

Dar told the National Assembly the government had set its sights on achieving a GDP growth rate of 3.5pc, while striving to keep inflation below 21pc and limiting the budget deficit to 6.5pc of GDP. Export targets have been set at $30bn, while foreign remittances are expected to reach $33bn in the coming year. The federal development budget, known as the Public Sector Development Program (PSDP), has been allocated Rs950bn. Out of the total gross revenues, the government will transfer Rs5.27tr to the provinces under the National Finance Commission (NFC) arrangement. Consequently, the government will have a net revenue of Rs6.887tr available for its own expenditures. Meanwhile, the total budgeted expenditures are set at Rs14.46tr. On the expenditure side, current expenditures are projected to amount to Rs13.32tr. Within this, a significant portion of Rs7.3tr will be allocated to debt servicing, which includes interest payments on both local and foreign loans. The second-largest allocation goes to defence expenditure, with Rs1.804tr earmarked for this purpose. Additionally, grants and transfers to provinces will reach Rs1.464tr, while spending on pensions will amount to Rs761bn.

The minister acknowledged that due to the devaluation of the rupee and an increase in the State Bank of Pakistan’s policy rate, people have faced difficulties. However, the government made the decision to prioritise improving the economy over political gains, making sacrifices in the process. At a time when inflation is surging, the expansionary budget, which aims to increase spending, may hinder the government’s efforts to control inflation. Additionally, the government has raised taxes, potentially exacerbating the price situation. The budget does not mention any austerity measures in government expenditures but rather focuses on increased spending.The budget deficit, representing the gap between revenue and expenditure, has been estimated at Rs6.924bn, equivalent to 6.5pc of the GDP. The government will strive to close this gap by borrowing from local and international lenders, despite the fact that the IMF programme has experienced setbacks in recent months and is set to conclude on June 30, 2023. The government has set a target of achieving a primary budget surplus of Rs379bn for the fiscal year 2024.

Interestingly, the proposal to increase the petroleum levy from the current Rs50 to Rs60 per litre may dampen the impact of salary increases for government servants, while the common man in the private sector is likely to bear the brunt of it. The government aims to collect Rs869bn in the next financial year, compared to the revised estimate of Rs542bn in the outgoing fiscal year.In an interesting development, the government has allowed individuals to bring in up to US$100,000 to Pakistan without being required to disclose the sources of income. Previously, the limit was set at Rs50 million in Pakistani rupees, but it has now been converted to dollars to help boost the country’s foreign exchange reserves.

The budget also includes the rationalisation of the Super Tax under Section 4C, which will apply to all individuals with income above Rs150 million. Three new income slabs have been introduced, with the lower slab of Rs350 to Rs400 million taxed at 6pc, Rs400 to Rs500 million at 8pc, and Rs500 million and above at 10pc.

The budget includes various measures to support the agriculture sector, such as an increase in agriculture loans to Rs2.25tr from the current Rs1.8tr. Additionally, 50,000 agricultural tube-wells will be converted to solar systems. Combine harvesters, rice dryers, planters, and seeders have been exempted from all taxes and duties. A Rs5bn concessionary loan for the agro-industry has been allocated, and agro-based industrial units in rural areas with an annual turnover of up to Rs800 million will be exempt from all taxes for five years. A subsidy of Rs6bn has been earmarked for imported urea.The IT sector and IT-enabled services are expected to be the engines of growth in the coming years. The IT sector has been granted Small and Medium-sized Enterprise status to enjoy concessional income tax rates. To discourage the outflow of foreign currency through debit cards, credit cards, and banking channels, the withholding tax for filers has been raised from the existing 1pc to 5pc, while for non-filers it has been set at 10pc.Previously, the duties and taxes on imported Asian make cars with engine capacities of 1800cc or above were capped in 2005. Now, the capping is being removed for cars with engine capacities of 1300cc and above. To protect the domestic glass industry, the regulatory duty has been increased from the existing 15pc to 30pc.